- The Japanese Yen languishes near its lowest level since November 28 against the USD.
- Japanese consumer inflation eases as expected and reaffirms bets for a BoJ status quo.
- A positive risk tone also undermines the safe-haven JPY and lends support to USD/JPY.
- Reduced bets for a March Fed rate cut and rising US bond yields favour the USD bulls.
The Japanese Yen (JPY) remains on the back foot against its American counterpart during the Asian session on Friday and is well within the striking distance of its lowest level since November 28 touched earlier this week. The crucial Consumer Price Index (CPI) showed that inflation in Japan eased as expected in December. This, in turn, reaffirms market expectations that the Bank of Japan (BoJ) will stick to the ultra-dovish stance at its upcoming monetary policy meeting next week. This, along with a stable performance around the equity markets, undermines the safe-haven JPY and should allow the USD/JPY pair to prolong its upward trajectory witnessed over the past three weeks or so.
The US Dollar (USD), on the other hand, extends its sideways consolidative price move near a more than one-month top and continues to draw support from hopes that the Federal Reserve (Fed) might keep interest rates higher for longer. The better-than-expected US macro data released this week pointed to a still resilient economy and forced investors to further trim their bets for a Fed rate cut in March. This continues to push the US Treasury bond yields higher and acts as a tailwind for the buck, validating the positive outlook for the USD/JPY pair. That said, geopolitical tensions help limit losses for the JPY and cap the currency pair ahead of the highly-anticipated BoJ meeting on January 22-23.
Daily Digest Market Movers: Japanese Yen is undermined by fading hopes for an imminent BoJ pivot
- The Japanese Yen remains within the striking distance of a nearly two-month low against the US Dollar following the release of domestic consumer inflation figures.
- The Statistics Bureau reported that the headline Consumer Price Index (CPI) eased from the 2.8% YoY rate to 2.6% in December – hitting the lowest level since June 2022.
- Japan’s core inflation rate, which strips out prices of volatile fresh food prices, decelerated further from 2.5% in November, to 2.3%, or its lowest level since July 2022.
- This comes on top of the New Year’s Day earthquake in Japan and weak wage growth data, ensuring that the Bank of Japan will not pivot away from its ultra-dovish stance.
- Investors further pared bets for an early rate cut by the Federal Reserve after data on Thursday showed that Jobless Claims fell to the lowest level since September 2022.
- The strong labour-market report, along with upbeat US Retail Sales figures on Wednesday, indicated a still-resilient economy and dented expectations for a Fed cut in March.
- According to the CME Group’s FedWatch Tool, the markets are currently pricing in a 57% chance of an interest rate cut at the March FOMC meeting, down from 75% a week ago.
- In the latest geopolitical developments, Iranian-backed Houthi terrorists in Yemen launched two anti-ship ballistic missiles at a US-owned, Greek-operated tanker ship on Thursday.
- The risk of a further escalation of military action in the Middle East could benefit the JPY’s safe-haven status and keep a lid on any meaningful upside for the USD/JPY pair.
- Traders now look to the US macro data – the Preliminary Michigan Consumer Sentiment and Inflation Expectations, along with Existing Home Sales – for a fresh impetus.
- The market attention, meanwhile, will remain glued to the upcoming BoJ monetary policy meeting, which will play a key role in influencing the near-term JPY price dynamics.
Technical Analysis: USD/JPY trades just below multi-week top near 148.50, bullish potential seems intact
From a technical perspective, the range-bound price action witnessed over the past two days might still be categorized as a bullish consolidation phase on the back of over a 750 pips rally from the monthly swing low. Furthermore, the recent breakout through the 147.50 confluence – comprising the 100-day Simple Moving Average (SMA) and the 61.8% Fibonacci retracement level of the November-December downfall – favours bullish traders. This, along with the fact that oscillators on the daily chart are holding comfortably in the positive territory and are still far from being in the overbought zone, suggests that the path of least resistance for the USD/JPY pair is to the upside.
That said, it will still be prudent to wait for some follow-through buying beyond the 148.50-148.55 region, or a multi-week top set on Wednesday, before positioning for any further gains. Spot prices might then accelerate the positive move towards the 149.00 round figure. The upward trajectory could extend further towards the 149.70-149.75 region before the USD/JPY pair eventually aims to conquer the 150.00 psychological mark.
On the flip side, corrective declines towards the 147.50 confluence resistance breakpoint might still be seen as a buying opportunity and remain limited. That said, a convincing break below might prompt some technical selling and drag spot prices further towards the 147.00 round figure. The latter should act as a pivotal point for the USD/JPY pair, which if broken could pave the way for a further decline towards the next relevant support near the 146.60-146.50 region.
Japanese Yen price today
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.07% | 0.02% | 0.01% | 0.00% | 0.12% | 0.10% | -0.02% | |
| EUR | 0.07% | 0.08% | 0.08% | 0.06% | 0.20% | 0.13% | 0.05% | |
| GBP | -0.01% | -0.09% | -0.01% | -0.02% | 0.10% | 0.04% | -0.03% | |
| CAD | -0.01% | -0.08% | 0.01% | -0.03% | 0.11% | 0.06% | -0.03% | |
| AUD | 0.01% | -0.03% | 0.05% | 0.01% | 0.16% | 0.07% | -0.01% | |
| JPY | -0.12% | -0.19% | -0.08% | -0.11% | -0.14% | -0.02% | -0.14% | |
| NZD | -0.09% | -0.17% | -0.05% | -0.10% | -0.14% | 0.01% | -0.12% | |
| CHF | 0.02% | -0.01% | 0.03% | 0.03% | 0.00% | 0.17% | 0.12% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.
The Bank’s massive stimulus has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.
A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. Still, the Bank judges that the sustainable and stable achievement of the 2% target has not yet come in sight, so any sudden change in the current policy looks unlikely.